Briefing
The Arcadia Finance protocol on the Base network suffered a critical $3.6 million exploit, resulting in the unauthorized draining of user-deposited liquidity provider (LP) tokens. The core vulnerability was a lack of input validation within the Rebalancer smart contract’s swap function, which allowed an attacker to inject a malicious contract address. This attacker-controlled contract then leveraged the Rebalancer ‘s trusted, whitelisted status to execute arbitrary functions and withdraw user assets, with the total net loss quantified at approximately $3.6 million.
Context
The prevailing risk in DeFi protocols with complex asset management logic is the over-privileging of internal components, which creates a large attack surface. Before the incident, the system’s architecture relied on a critical trust assumption → that the whitelisted Rebalancer would only interact with verified external DEXs. This design choice, which lacked strict validation on user-supplied parameters, opened a systemic vulnerability to an attacker-controlled external call.
Analysis
The attack vector exploited the SwapLogic._swapViaRouter() function, which performed a low-level call using a user-supplied swapData parameter without validating the target router address. The attacker first deployed a malicious router contract and then initiated a transaction that injected this rogue address into the swapData. Since the execution originated from the whitelisted Rebalancer contract, the malicious router inherited the elevated permissions, allowing it to bypass the protocol’s access controls and execute unauthorized withdrawals of user LP tokens. The exploit was concluded by bridging the stolen funds off the Base network to Ethereum Mainnet.
Parameters
- Protocol Loss Metric → $3.6 million (The net value of user liquidity provider tokens drained by the exploit).
- Vulnerability Root Cause → Lack of Input Validation (The smart contract failed to verify the legitimacy of the router address within the swapData parameter).
- Affected Blockchain → Base Network (The exploit was executed on the Base Layer-2 network before funds were bridged).
- Exploit Mechanism → Trusted Context Hijack (The attacker leveraged the whitelisted Rebalancer contract’s privileges to execute unauthorized external calls).
Outlook
Users must immediately revoke all approvals granted to the compromised asset management contracts to mitigate ongoing risk. This incident reinforces the critical need for all DeFi protocols to adopt a “zero-trust” principle, specifically by implementing rigorous validation checks on all user-supplied calldata and strictly segmenting permissions for internal contracts. Future audits must prioritize inter-contract communication flows and external call validation to prevent similar logic flaws from weaponizing trusted components.
Verdict
This $3.6 million exploit serves as a definitive case study on the catastrophic risk posed by unchecked external call parameters in privileged smart contract functions, mandating a systemic re-evaluation of all inter-contract trust models.
